The internal causes attributed to the absence or lack of PLS ​​financing modes are those factors found within an Islamic financial institution. Although many reasons have been cited, including lack of human resources and management issues, it is evident that a recurring information asymmetry would be identified as the optimal cause of why Islamic banks refrain from using profit-sharing contracts and losses as a means of finance. The problem of information asymmetry arises when one party to a transaction does not know vital information, which could cause the second party to take advantage of the ex parte's lack of knowledge. Therefore, the presence of such asymmetry results in three usual negative factors, these are; adverse selection, moral hazards and agency costs. These will be explained later. Adverse Selection: Just like any other financial institution, Islamic banks are forced to consider the issue of risk management. Therefore, it is crucial in this debate to discuss the issue of agency problem or contract enforcement within Islamic finance; one of the most discussed risks faced by Islamic banks today. Due to the apparent “low level of transparency,” PLS contracts are argued to be inherently vulnerable to agency problems such as entrepreneurs. This can be mainly attributed to the fact that Islamic banks, as investors, fear that borrowers in some cases hide crucial information. Due to the lack of comprehensive information on borrowers, banks are unable to discriminate against risky borrowers. This is commonly referred to as information asymmetry. In conventional banking, lenders charge high interest rates to negate the higher risk inherent in lending. However, due to a lac...... middle of paper ......Cited Brouwer, M. 2005. Managing uncertainty through profit-sharing contracts from medieval Italy to Silicon Valley. Journal of Management & Governance, 9 (3-4), pp. 237--255. Dar, H. A., & Presley, J. R. 2000. Lack of Profit Loss Sharing in Islamic Banking: Management and Control Imbalances. International Journal of Islamic Financial Services, 2(2), pp. 3--18. Dar, H., Harvey, D., and Presley, J. 2014. Size, Profitability, and Agency in Profit- and Loss-sharing in Islamic Banking and Finance. [report] Cambridge, Massachusetts: Proceedings of the Second Harvard University Forum on Islamic Finance. Febianto, I. 2012. Adapting risk management to profit-and-loss sharing financing of Islamic banks. Modern Economy, 3 (1).Ul Haque, N. and Mirakhor, A. 1986. Optimal profit-sharing contracts and investments in an interest-free Islamic economy. IMF Working Paper.